College costs heading for a crash

Under challenge from distance learning, schools won't be able to continue outrageous price increases

August 12, 2010|By Ron Smith

If you type "college costs bubble" into an Internet search engine as I did recently, you'll find quite the list of news stories and opinion pieces focused on the fact that the costs of higher education have risen so quickly and reached such heights that they are obviously unsustainable. "Unsustainability" is a word we see more and more as the economy continues its weakness. Public worker pension costs are described that way, having been sustained thus far only by tapping the federal Treasury to bail out the many states that can't meet their pension liabilities.

This game will come to an end soon. One indicator of that is the trimmed-down amount of $26 billion Congress approved this week to prevent the layoffs of teachers, public safety workers and other government employees in fiscally strapped states that lack Washington's ability to mint more dollars. The New York Times harrumphed that this was about half of what was needed for the job, but it was all the legislators had the stomach for as voter discontent over swollen public spending continues to build with the elections looming.

The cost of a college education in this country has risen some 440 percent in the past quarter-century, approximately four times the inflation rate. As a result, we see recent debt-saddled college graduates tossed into the middle of a slack economy offering scant job prospects, and certainly very few with the potential to enable them to repay tens of thousands of dollars in student loans from salaries that are inadequate to serving such debt loads. Most of us know or know of young people in this kind of situation, and we can assume that the increasing unaffordability of traditional college educations will lead to falling enrollments. The business model under which higher education has been able to raise its costs willy-nilly is, in a word, broken. Pundits are hustling to make known their suspicions that college costs might be the next major economic bubble to burst.

The government has shoveled all sorts of subsidies to colleges and universities, but instead of these subsidies reducing the cost to the consumer, they have instead, perversely, given educators the ability to raise tuitions. According to an article in Inside Higher Ed, this is because the field is dominated by public and nonprofit institutions whose goal is not to make profits but to maximize the prestige they enjoy. They don't want more students because (expanding production) this would lower the quality of the student body, which is why the "best" schools turn away more than 90 percent of those seeking admission.

There is also the problem that there is really no way to measure what the students who graduate from these schools actually gain from the education they and their families have paid for. Lacking that metric (which could prove the opposite), most of these consumers cling to the belief that the high costs they paid must mean they got the best education available. This is why the extraordinarily high prices don't scare customers away from the product.

Why are we then to believe that this business model can't chug on, oblivious to its inflated costs? It's because price competition is emerging with a vengeance in this digital age. Economist Gary North says the collegiate system is a cartel kept in place through "a series of Federal government-recognized but privately run accreditation agencies." What breaks cartels is price competition. Digitally, education can be delivered for a fraction of the cost of attending a brick-and-mortar university. Of course, this approach, already being used in what we might call the "University of Phoenix model" and also by home-schoolers around the world, is something that will be fought tooth-and-nail by the educratic elite and the politicians who support this system that teaches preservation of the political status quo.

In the end, though, the modern educational system will succumb to what Mr. North calls "distance-learning programs." He describes this as a digital dagger at the heart of the ruling elite. The gatekeepers of education are being rendered obsolete by the Internet. The only question is how long it will take for this to play out.

Ron Smith can be heard weekdays, 9 a.m. to noon, on 1090 WBAL-AM and WBAL.com. His column appears Fridays in The Baltimore Sun. His e-mail is rsmith@wbal.com.